Mr. Mark Francois (Rayleigh) (Con): The hon. Lady will have heard from the speech by the shadow Chief Secretary, my hon. Friend the Member for Chipping Barnet (Mrs. Villiers), that we do not believe that the scheme should be abolished, because of the good work that it has achieved and we intend to table amendments to that effect fairly shortly. May I take it from the remarks that the hon. Lady has made that, if we do that, in principle, we will have the support of the Liberal Democrats for our efforts to try to save that valuable scheme?
Turning to the impact on individual taxation, the picture is similarly depressing. We still see ever-greater complication and no serious moves to address the regressive nature of the taxation system. As was said earlier, the top 20 per cent. of people pay less as a proportion of their income in taxation than the lowest 20 per cent. That represents levels of inequality that are worse now than at any time under Thatcher or Major. Council tax, the most regressive form of taxation, which is unrelated to the ability to pay, remains. Among those struggling to pay it are pensioner households, which have been affected by the Chancellor's decision to end the rebate for pensioner households. That will make this year's council tax hikes even bigger for them.
Huw Irranca-Davies (Ogmore) (Lab): Will the hon. Lady give us the figures for how many families have benefited from the working tax credit, which has been introduced to lift people not only above the poverty line, but well above it, and will she comment on the significant impact that that has had on many families in constituencies such as mine in Ogmore?
The hon. Gentleman makes the point that I am trying to make, which is that there is incredible complexity and people do not understand. One of the biggest issues in my surgeries every single week is families who do not understand the letters that
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they are getting about tax credits or why the overpayment demands that they get vary by thousands of pounds.
I want to turn to trusts and inheritance tax, which are covered by clause 157. Like the home computer initiative, those proposals caught the industry and individuals totally by surprise. At this stage, it is not exactly clear what the proposals are, since there seems to be a lot of debate between professionals and the Treasury about the number of individuals and wills affected and the amount of revenue that will be raised.
In some respects, the Treasury seems to contradict itself. On the one hand, it says that the changes will affect only a very small number of individuals and will raise a very small amount of revenue, yet, on the other hand, the change could not be put out to consultation prior to being announced, in case it had an impact on the market. How many people will be affected by the changes? How many people will have to go back and change their will or trust arrangements regardless of whether they are currently over the inheritance tax threshold? I urge the Minister to look at paragraphs 109 and 110 in the Treasury Committee report, which urge the Treasury to consider those issues prior to the Bill going to Committee.
The scheme also seems to create anomalies, rather than resolve them, and assumes that trusts are mainly used for tax avoidance. At the moment, the taxation of trusts mirrors the taxation of individuals. Income tax is paid on income from a trust, and people are treated as the owners of the trust asset for inheritance tax purposes. That logical system need not necessarily be changed because discretionary trusts are already subject to a different regime. The anomaly is that those who are richer and have the liquidity to give money before their death will be unaffected because the ruling that allows gifts to be made tax-free still remains, provided that they are given seven years before death. Whatever the actual impact of the measure, it is clear that the changes will not create clarity and simplicity to help the public's ability to understand their effect on them. Perhaps, as was the case for self-invested personal pensions last year, a lack of planning will result in significant unintentional consequences and might yet force embarrassing compromises from the Government.
To sum up, while the Government's macro-economic record to date has largely been one of stability, one of the fundamental reasons why that has been the case was that the Bank of England was given independencethat policy was called for by the Liberal Democrats. However, the Government tend to spoil their own narrative with endless hype and exaggeration, which becomes easier when they are responsible for marking their own exam papers when analysing their economic record.
The hallmark of the Chancellor's time in the Treasury has been vast over-complication and endless meddling with minutiae. Such tinkering creates instability because of the uncertainty with which the changes leave both individuals and businesses. What is the point of medium
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and long-term financial planning if tax incentives and implications are likely to change and every change proposed does not take place in isolation, but has cross-cutting effects and unintended consequences? Individual learning accounts, self-invested personal pensions and even the changes to corporation tax are classic examples of the Government creating problems for themselves by rushing through changes and not investigating the likely consequences, which have to be addressed after the changes have already been introduced, thus creating a cycle of complication and change.
The fundamental reason why we will vote against Second Reading is that the Government have missed the opportunity to address the key environmental issues that we face. Last week, at the most superficial level, the Chancellor and the Leader of the official Opposition showed willing to talk the talk, but the substance of the Bill, and the Conservatives' failure even to mention those issues in their opposition to the Bill, clearly indicate that they have no intention yet of walking the walk.
Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab): I draw the House's attention to my entry in the Register of Members' Interests. When I have the good fortune to catch the eye of the Chair on Second Reading of the Finance Bill, which I do most years in which I am eligibleI have been a bit more eligible in recent years than I used to beI find myself to be a bit of a usual suspect. However, after listening to the excellent contribution made by my right hon. Friend the Member for West Dunbartonshire (Mr. McFall), and looking across to the right hon. Member for Wokingham (Mr. Redwood) on the other side of the House, who will, I assume, hope to catch your eye, Madam Deputy Speaker, I have some consolation that I am probably not alone as a usual suspect.
We live in a world of ever-rapid change. Any of us who want to talk about economic issues in this country or elsewhere would be foolish if we were unrealistic about facing up to the changing international economic situation, which is often referred to as globalisation, that has made things very different for every country in the world. Globalisation is not a new phenomenon. Anyone who has read about the history of the 19th century will be aware of the challenge faced even then by British manufacturing industry and the excellent way in which the industry met it. The difference today is the speed with which change takes place.
I remember talking to the chief executive of a major industrial conglomerate in the textile industry some 25 years ago. He told me that he was still competitive because he had technology that others did not have, which allowed him to sell the relatively up-market products that people wanted to buy worldwide. He felt sorry for textile companies that did not have that technology.
The difference today is that nobody is protected from the transfer of technology. Technology transfers instantly, and any company or operation that thinks that it can continue to do as it did in the past without being aware of that international challenge has its head in the sand. As a nation we must take our head out of the sand. The only thing that matters nowI shall turn to
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this later in my contributionis the application of human ingenuity and knowledge in doing something new or in doing it better. That is the challenge faced by every Chancellor in the world when drawing up a Budget.
In the past 12 months that situation has been additionally aggravated by the change in the world oil price. The increasing demand for energy from countries such as China and India puts pressure on an oil price already under pressure because of the political situation in the middle east. That carries an enormous potential threat to the stability of our economic community. We in this country face a further challenge in maintaining our competitiveness. I refer to the downturn in the rest of the European Union marketI use that term as shorthand because it is others as wellwhich is the biggest area for our exports. That makes it doubly difficult for us to face the global challenge and the energy challenge. We, of course, are not unique.
Against that background, we have a stable economy with considerable growth. I shall not endlessly quote the views of others to the House, but I want to repeat what was said by the Organisation for Economic Co-operation and Development, which is, as most economists in the world would accept, an independent, international body that looks objectively at economic situations. In October 2005 the OECD said:
"The UK is a leader in the quality of its monetary and fiscal policy frameworks among OECD countries. The Framework has played a key role in improving macroeconomic stability relative both to the past and to other OECD countries."
I follow the exchanges across the House at Treasury questions, and I know that it is the job of Opposition Front Benchers to scoff at economic statistics offered in defence of the strong economy. However, I submit that if one takes the package of statistics a clear picture emerges. As my right hon. Friend the Chief Secretary said, in 2005 growth in the UK was higher than in any other major European country. We have had 54 quarters of constant economic growth. As we all know, inflation is the lowest it has been since the 1960s. Consequently, we now have the lowest interest rates for a generation, and they are not only low but stable, which is crucial not only for those who want to invest in our economy but for those who want to purchase houses or to consume.
We were warned when we introduced the minimum wage that employment would fall, and it is clear that that has not happened. There is greater employment in this country now than ever, and the pockets of severe unemployment, including those in my constituency, have been tackled by the Government's programme. Unemployment is less than half what it was in 1997. Schemes such as the new deal are making a major contribution in edging into employment people who previously were unable to take advantage even of an economic upturn. Our employment rate is higher than that in the United States, Japan, France, Germany, Italy and Canada. That means that people are better off, and that is the real experience of people out in the country. It does not mean that everyone is better off, but on average communities know that they are better off. Real living
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standards have risen over the past 10 years and the nation's ability to spend on both public welfare and public investment has increased over that period, and people know that.